Key Highlights
Personal income tax relief and deductions
The Budget introduces a Working Australians Tax Offset (WATO) of $250 per worker claimable as part of the individual income tax return for the 2027–28 tax year.
Coupled with previously announced changes to income tax rates (see below), this will contribute towards reducing “bracket creep.”
Taxable Income | Current Rates | Rates Effective 1 July 2026 | Rates Effective 1 July 2027 |
Up to $18,200 | 0% | 0% | 0% |
$18,201 - $45,000 | 16% | 15% | 14% |
$45,001 - $135,000 | 30% | 30% | 30% |
$135,001 - $190,000 | 37% | 37% | 37% |
From $190,000 | 45% | 45% | 45% |
Source: KPMG in Australia
The Medicare levy low-income threshold will increase effective 1 July 2025 by 2.9 percent across the various groups, for example from $27,222 to $28,011 for singles, $45,907 to $47,238 for families, etc.
Instant $1,000 tax deduction for work-related expenses
From 1 July 2026, the government has introduced a $1,000 instant tax deduction for work-related expenses incurred by Australian tax residents, without requiring receipts. This is consistent with the exposure draft legislation released in April 2026. Other non-work-related deductions can still be claimed on top of the instant tax deduction (e.g., charitable donations). Individuals who claim more than $1,000 in work-related deductions can continue to do so as normal but will need to maintain receipts.
Capital Gains Tax (CGT) reform
From 1 July 2027, the 50 percent CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30 percent minimum tax on net capital gains introduced. The only exception to these new rules will be investments in new residential properties, where investors will be able to choose either the current 50 percent CGT discount, or cost base indexation and the 30 percent minimum tax.
Cost base indexation will be calculated based on the Consumer Price Index (CPI). These changes will apply to all CGT assets (including pre-1985 CGT assets) held by individuals, trusts, and partnerships.
For eligible CGT assets other than new residential properties, the following transitional arrangements will apply:
Date Asset Acquired | Date Asset
Sold | CGT Treatment |
Prior to 20 September 1985 | Prior to 1 July 2027 | Exempt from CGT. |
Prior to 20 September 1985 | On or after 1 July 2027 | • Portion of gain accrued prior to 1 July 2027 exempt from CGT. • Post 30 June 2027 accrued gains subject to cost base indexation and the proposed 30% minimum tax*. |
Between 20 September 1985 and 30 June 2027 | Prior to 1 July 2027 | • Continues to be eligible for the 50% CGT discount. |
Between 20 September 1985 and 30 June 2027 | On or after 1 July 2027 | • Portion of gain accrued prior to 1 July 2027 eligible for the 50% CGT discount. • Post 30 June 2027 accrued gains subject to cost base indexation and the proposed 30% minimum tax*. |
*Taxpayers can either seek a valuation of their assets as of 1 July 2027 (including using quoted prices for shares); or use a specified apportionment formula (supported by ATO tools to estimate value).
Changes to negative gearing
From 1 July 2027, the government proposes to limit negative gearing for residential property to new builds only.
Investors who enter contracts of purchase for an established residential property after 7:30 pm AEST, 12 May 2026, will only be able to deduct losses against income or capital gains from residential property. Any unused rental losses will be carried forward to future years and quarantined to offset income or capital gains from residential property only.
Negative gearing arrangements will be fully grandfathered for established residential properties held at 7:30 pm AEST on 12 May 2026. This grandfathering extends to residential properties where a contract of purchase was entered into before that time, even if settlement occurs after that date.
Other asset classes, such as shares and commercial property, will remain subject to existing arrangements (i.e., negative gearing can apply without restriction).
Minimum tax rates for discretionary trust distributions
From 1 July 2028, the government will introduce a 30 percent minimum tax on most discretionary trusts.
Trustees will pay a minimum tax rate of 30 percent on the taxable income of discretionary trusts. Beneficiaries, excluding corporate beneficiaries, will receive non-refundable credits for the tax payable by the trustee.
This means that if a beneficiary’s effective tax rate is above 30 percent, they will still need to pay additional tax, while those taxed below 30 percent will not receive a refund for the difference. The new rules will also discourage the use of corporate beneficiaries given the potential for double entity taxation.
Expanded rollover relief will be available for three years from 1 July 2027 to support small businesses and others that wish to restructure into another entity type.
Extension of ban on foreign purchases of established dwellings
The Government has extended the ban on foreign purchases of established residential homes until 30 June 2029, to prioritise access for Australian buyers.
Existing exemptions remain, including purchases by permanent residents and New Zealand citizens, and for arrangements that support increasing housing supply.
The measure aims to shift foreign investment towards new housing while modestly reducing Government revenue from application fees.
Electric Vehicle Fringe Benefits Tax (FBT) policy reform
The government has committed to delivering policy reform in relation to the existing FBT discount for electric vehicles (EVs).
EVs valued up to and including $75,000 that are provided before 1 April 2029 will continue to be eligible for a 100 percent discount on FBT.
EVs valued above $75,000 and up to and including the fuel-efficient luxury car tax threshold that are provided between 1 April 2027 and 1 April 2029 will be eligible for a 25 percent discount on FBT, implemented through a 15 percent rate in the FBT statutory formula.
From 1 April 2029, a permanent 25 percent discount on FBT will be available for all EVs valued up to and including the fuel-efficient luxury car tax threshold. This discount will be implemented through a 15 percent rate in the FBT statutory formula.
Notably, the discount will not be factored into the Reportable Fringe Benefit Amount for individual reporting which is used for income testing for certain government benefits and obligations.
